The end of the Web 2.0 advertising myth

From @bmorrissey

For a long time, I was reminded of The Graduate whenever I met with an eager, undeniably smart and ambitious Silicon Valley founder. After he explained the consumer value the Web 2.0 service created, I’d ask the business model question. Instead of whispering “plastics,” it was “advertising.”

This unflinching belief in advertising as the catchall monetization tool came out of the strange Valley culture, which I’ve found just as inward-focused as the more-maligned East Coast media industry. The VCs, analysts and entrepreneurs all bought into this idea that if you build a large enough audience, you have a media business. Not quite. On one level, I understood this line of thought. Unless you have scale, you don’t have a business anyway, so focus on scale. But it led to a nearly comical belief that the process of actually making money was quite easy, like turning on a spigot. Dave Karnstadt, the Efficient Frontier CEO, spent six months as an executive in residence at Redpoint Ventures. He told me a disturbing number of companies he met with pointed to AdSense as their revenue model. What many companies are finding is even if they build to what they find what they think is scale, it’s not enough.

This is the great unraveling of this Web 2.0 advertising myth. As Wenda Harris Millard said, “There’s not enough advertising to go around.” The Times has a story about how iMeem and other music services have recognized the economics of ad-supported music aren’t there. News Corp's Jon Miller had some interesting things to say at All Things D about how even a behemoth like MySpace needs to diversify its revenues. On a much smaller scale, Om Malik rolled out a subscription service for his GigaOm network of content sites.

Like other unravellings (not a word), this is going to get messy. This is the year these venture-backed startups will have to figure out their business models, and it couldn’t come at a worse time. Web 2.0 companies will come to realize that building a media business is hard work, not just matter of amassing millions of eyeballs. Many services built are communications platforms that don’t perform well on a direct response basis. That means relying on scarce brand dollars. And the process of selling brand advertising is painful and requires a totally different skill set and culture than these tech companies possess. The upside is the next generation of startups will most likely focus on their business models earlier – and be a little more creative than using advertising as a cure-all.

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This article was picked up by The New York Times http://www.nytimes.com/external/readwriteweb/2009/05/27/27readwriteweb-clearspring-now-sees-what-half-of-the-inter-13220.html

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Press Releases - National Geographic Launches Slate of New Widgets with Clearspring - Clearspring

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Sexywidget post about Newsgator

Checking in with NewsGator

NewsGator is a company that sort of snuck up on me in the widget space. One minute I knew them as an RSS Reader, and then seemingly overnight, they have established themselves as a leading player in helping companies leverage widgets to extend the reach of their content. Curious to learn more about them, I sent them over a few questions about their business.

Walker Fenton, General Manager for NewsGator's Consumer and Media Products, was kind enough to conduct this email interview with me. Enjoy:

What is NewsGator?

There are a lot of moving parts in NewsGator. It’s probably easiest to distill the three main things we do: first, and probably what we’re best known for, are RSS-solutions and readers (such as NewsGator Online, FeedDemon, Netnewswire, Netnewswire for iPhone etc.); however, we’re also heavily involved with social computing and RSS for the enterprise – in specific, adding significant tools and functionality to Microsoft SharePoint through our NewsGator Social Sites product (which you could think of as Facebook for the enterprise), which is a behind-the-firewall social computing platform.

The other side of the company is generally referred to as “Media & Consumer” and we focus on ways to help companies extend their brand’s reach, exposure and content, through syndication, in multiple different ways. We have several products that help companies do this, such as our social widgets, our related content offerings, our custom-built, branded iPhone applications, and something we now terming “NewsGator Publisher Suite,” which includes a host of tools that allow companies to syndicate their content, increase brand exposure, enhance revenue (such as our new “AdBurner” program, which is a pre-packaged, integrated ad placement service that can cover a company’s entire ad inventory in widgets, related content, or iPhone applications.)

What is NewsGator's revenue model?

That, too, depends on what parts of the company you’re talking about, but I’ll focus here on the Media & Consumer side. The main way we drive revenue is by charging clients monthly fees in exchange for creating widgets for them (most of which are viral), that can contain text, video, audio, pictures, etc., that allow them to spread their reach across the social web. Some of our revenue also comes from rev-share programs. For example, our AdBurner platform, designed especially for premium publishers, provides a turnkey advertising-based solution to optimize ad revenue around key web 2.0 technologies with no incremental effort on their part; a portion of this ad revenue is shared with NewsGator. We also, of course, charge clients when we build custom, branded iPhone apps for them.

How can companies use NewsGator products?

Our products allow publishers to increase the reach of their content (and visitors’ interaction with it), enhance their branding efforts, and increase visitors’ time spent on site all while monetizing this content. These products all fall under the large umbrella of “syndication.” In addition, we offer several products around data services, which provide businesses with a scalable, reliable source of RSS content and metadata around the consumption of that content across the entire NewsGator Platform. Are products are designed to be a win-win scenario for publishers: they spread their content across the viral web, enhance their branding, and make money while doing it.

Can you give us some background on the evolution of your business from enterprise RSS to include enterprise widgets?

Actually, your question is loaded! Our syndication (widget) and enterprise products grew simultaneously; the widget product didn’t descend from the enterprise product.

NewsGator started with a RSS Reader plug-in for Microsoft Outlook. Soon, there was an online portal that would sync with the client application, so users could read their feeds in Outlook or on the Web and each would synchronize with the other. NewsGator’s management noticed that there were many purchases in lots of 10, 20 (or more) and realized there was a need for an enterprise version.

NewsGator’s engineers created a behind-the-firewall RSS management tool that could present secure content to users and enable IT and business administrators to manage and monitor the RSS feeds their employees were reading.

As NGES matured, NewsGator’s management (and its customers) realized that the RSS protocol provided an efficient method to extend the product’s initial purpose (the management and consumption of RSS) to social computing. This product is now termed NewsGator Social Sites.

During the development and growth of NGES, the user base of the consumer version of the Outlook plug-in and the online reader continued to grow. In speaking with media clients, it became clear to NewsGator management that some customers wanted a way to enable their own sites’ users to personalize content but under their own brands (kind of like “My Yahoo” but branded by the customers). To answer this need, NewsGator created a white-labeled version of its online reader and deployed that solution to USA TODAY, the San Francisco Chronicle, Newsweek, the Denver Post and others. During this time, clients also asked for personalization to extend from this separate experience onto existing pages (like the section fronts of USA TODAY). During the development of that product (NewsGator Buzz), NewsGator realized that the same technology could be used to export branded content to those places where media users’ eyeballs were migrating (Facebook, iGoogle, etc.)

That’s how the widget framework and Social Sites came to be. It was concurrent (and symbiotic) development. One product did not descend from the other.

What parallels do you see between widget development and iPhone development? Can you talk a little bit about NewsGator's iPhone efforts?

Whether through an iPhone or a widget, our focus is to deliver products that show content well, maintain brand, and have interaction models that take advantage of the technology/destination (with appropriate monetization). Having said that, widgets and iPhone applications essentially do the same thing - they promote the latest videos, headlines, images, etc., but in different ways.

When Apple launched the iTunes App Store last summer, they asked Brent Simmons (the creator of NetNewsWire on the Mac) to create a version of NetNewsWire for the iPhone. They result was fantastic - Time.com named NetNewsWire on the iPhone as one of their top 10 iPhone apps for 2008. NetNewsWire for iPhone is just the right experience for the device; it doesn’t have all the bells and whistles as the desktop application, just those that are most appropriate for showing content on the device while keeping the familiar user experience that you would expect from an iPhone application. The iPhone Media Application Framework continues to build on this premise, not only showing content well, but making it simple and fast as well.

NewsGator counts among its clients a number of newspaper properties. Can you talk about the challenges and opportunities of working with this embattled sector? Any tips for startups looking to work with newspaper sites?

Yes, there is no denying that it is a challenging environment right now. What it means for us is that we’re working harder than ever to optimize the eCPMs that our publishing partners get against their content. We recently put together a program called AdBurner, where we’ve partnered with several different Ad Networks to deliver on this goal. As a technical conduit, NewsGator is in a good position to best optimize content that is shown in our widget framework or iPhone apps against advertising.

What's new in the widget space? Any new developments that Sexy Widget readers should be aware of?

Typically when people think of widgets they think of portable games or latest broadcasted headlines – but the technology landscape is changing. Now with the integration of social features and the addition of semantic metadata, a publisher’s ability to provide you with content that is relevant to you and your community is quickly approaching. Think, “tell me what I don’t know (that is important to me)”.

Can you share any observations about how the down economy is affecting NewsGator? Any tips for other entrepreneurs?

The only way to survive a market like this (or any market for that matter) is to continually focus on delivering value. Sounds a bit textbook to say that, but it holds true.

What can we expect to see from NewsGator in 2009?

We’re continuing to innovate, to push boundaries in the changing publishing landscape. We’re big fans of helping companies find new ways to reach audiences, and figuring out ways to learn more about these audiences to better address their needs as well. Happy readers are a good thing

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Only in that fleeting calm is truth realized

Room for tender emotions is almost always stolen. This is not to say that the darker emotions of shame, guilt, despair, etc. are not also prone to distract us from moral agency. In our struggle to survive our emotions, we must pit one against the other. Sometimes a certain neutralization results. Only in that fleeting calm, does truth sometimes make a brief cameo appearance.